US Stocks Fall As Concerns Over China Tightening, Earnings Weigh

DonnaKardos

NEW YORK (MarketWatch) -- U.S. stocks fell Tuesday, led by the energy sector as expectations for more tightening in China weighed on commodities while investors were disappointed with Alcoa's unofficial start to the first-quarter reporting season.

After closing above 11000 for the first time in nearly 19 months on Monday, the Dow Jones Industrial Average retreated below that level Tuesday, recently down 13 points, or 0.1%, at 10993. Alcoa was the measure's worst performer, off 2.3%. The aluminum giant, the first major company to report first-quarter earnings, reported a narrower quarterly loss on Monday evening. But its earnings excluding items merely met analysts' estimates, while revenue came in weaker than expected.

Keeping the declines in check, Home Depot rose 1.8%, while General Electric advanced 1%.

The Nasdaq Composite slipped 0.2%. The Standard & Poor's 500-stock index declined 0.4%, with the energy sector leading the drop, followed by materials, as commodities tumbled.

The declines in the energy and materials sectors came as investors became increasingly concerned that China may be nearing more tightening measures. The country's first-quarter economic data is due Thursday, and China's economy likely grew 11.5% in the first quarter, according to a Dow Jones Newswires poll of 13 economists.

"We're getting closer and closer to policy tightening in Asia," said Barry Knapp, managing director of equity research at Barclays Capital. "It's pretty clear given how strong the data's been recently that China's going to have to take some additional tightening steps. That's part of the reason why you see crude and materials falling off."

Monday, Chinese leader Hu Jintao told U.S. President Barack Obama that any changes to China's exchange-rate policies would be based on the country's own economic needs, signaling Beijing's displeasure at demands from Washington and elsewhere that China let its currency's value rise.

Worries over tightening in the U.S. are also increasing. Federal Reserve Chairman Ben Bernanke is scheduled to provide testimony to Congress Wednesday, and improved economic data in the U.S. is giving rise to some speculation that Bernanke could indicate a change in guidance on the rate outlook.

"He may strike a slightly more optimistic tone given how the data's looked even since the last FOMC meeting," Knapp said. "I would not be surprised to see a more optimistic outlook."

Meanwhile, investors are concerned stocks may have been pricing in too strong of a first quarter, potentially setting the market up for disappointment as the reports begin in earnest this week.

"The expectations have definitely been moved up pretty high. It's going to be a relatively tough hurdle to hit," said Ben Halliburton, chief investment officer at Tradition Capital Management.

He added that recent gains in stocks were "based on a very strong, economic recovery." However, Halliburton said, "with debt still a problem and unemployment still high, a strong economic recovery is not a sure thing. We're cautious."

The dollar strengthened against the euro but weakened against the Japanese yen. U.S. Treasurys edged higher, with the 10-year note up slightly to yield 3.83%. Gold futures declined along with crude.

Among the U.S. economic data released Tuesday, the trade deficit rose more than expected in February, as soaring imports of consumer goods and industrial supplies outweighed the impact of oil imports falling to their lowest level in 11 years. Also hurting sentiment, small business owners reported little pick up in their sales or confidence in March, according to The Small Business Optimism Index report from the National Federation of Independent Business.

Meanwhile, data from the Labor Department showed prices of goods imported into the United States rose by a monthly 0.7% in March. Economists had expected a 1.0% increase.

Among stocks in focus, CF Industries slipped 4% after the fertilizer company predicted first-quarter sales below Wall Street's expectations because of declining sales in its nitrogen and phosphate segments.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.